Amazon's Operating Margin Hits Record High, But AI Capex Drives Massive Free Cash Flow Outflow
Amazon reported a record 13.9% operating margin in Q3, but trailing twelve-month free cash flow swung to a $42.4 billion outflow due to AI infrastructure spending.
U.S. cloud and e-commerce giant Amazon.com, Inc. announced its third-quarter financial results for the period ended September 30, 2026, on October 29. The company reported operating income of $28.1 billion and an operating margin of 13.9%, marking the highest operating margin in its history. However, despite this improvement in profitability, the company's cash position deteriorated significantly due to massive investments in artificial intelligence infrastructure.
According to the filing, Amazon's free cash flow for the trailing twelve months (TTM) shifted from an inflow of $14.8 billion in the prior year to an outflow of $42.4 billion. This reversal was primarily driven by a year-over-year increase of $94.8 billion in net purchases of property and equipment, which the company explicitly attributed to investments in artificial intelligence. Although operating cash flow increased by 29% to $168.3 billion, the heavy capital expenditures completely offset the cash generated from operations.
CEO Andy Jassy stated that AWS's investment in functionality and infrastructure is working, with AWS net sales growing 39.3% year-over-year in Q3 to reach a $184 billion annualized revenue run rate. He projected revenue growth rates of over 40% for both 2027 and 2028. These figures illustrate the typical financial profile of tech giants in the current AI race: demonstrating business viability through high growth and margins while absorbing substantial upfront cash burn to build computational capacity.